Is Wage Theft More Prevalent in the Construction Industry?
There has been an increased focus on wage theft in states and jurisdictions throughout the U.S. In order to be better advocates for ourselves and others, we should all be educated on what wage theft is and why it is relevant to your firm and projects.
What is Wage Theft?
Though not often discussed, wage theft is the largest form of theft in the United States totaling more than $15 billion a year. It occurs when workers are not paid the appropriate wage. Common types of wage theft are workers misclassified as contract workers instead of full-time employees, or workers that receive a lower salary level than is appropriate, or when an employer withholds some of their pay, taxes, or benefits (including meal or rest breaks). Each of these circumstances results in a worker not receiving the appropriate payment for hours worked and can broadly be considered wage theft.
Why is there increased attention on Wage Theft now?
A number of states and jurisdictions have passed laws to expand the responsibility of addressing wage theft beyond just an employee’s immediate employer to also include the prime and/or general contractors for whom the employer is contracted. These laws create a right of action for the employee against their employer and any contractor for which their employer is working. In other words, all contractors are now responsible for making sure that every worker, for each of their subcontractors, is paid the correct, timely wage.
Is Wage Theft more common in the construction industry?
Wage theft can be particularly pervasive in the construction industry where there can be hundreds of subcontractors and workers on a single project. It can be difficult if all of the firms are paying overtime or tracking their labor compliance by project. Many construction companies only pay workers a flat, daily or weekly rate that does not include overtime pay. Some firms misclassify employees as independent contractors. It has become increasingly identified that workers are being misclassified as lower-paid job classifications, such as general laborers or apprentices, even if they are doing the work of a higher-paying classification.
Are there different types of Wage Theft?
Yes, there are several different ways that wage theft can occur. Some are more common than others, but all can create havoc and liability issues for employers, including fines and negative publicity.
- Misclassification Violations – incorrectly classifying employees, such as independent contractors
- Minimum Wage Violations – not adhering to minimum wage laws
- Illegal Deductions – when employers take a portion of an employee’s paycheck for items that do not qualify
- Overtime Violations – when employers wrongfully deny overtime pay to an eligible employee
- Rest Break Violations – not adhering to rest break laws, including deductions for meal breaks from an employee’s paycheck
How do I know what my states labor laws are?
Each state has its own labor laws, and these labor compliance laws vary from state to state. Click here to learn more about the labor laws and wage theft reporting in your state. If you qualify as a small business or disadvantaged business, read more on the Small Business Administrations’ state labor law guides by clicking here.
Why should I care about wage theft?
If you’re a general contractor you may wonder why should you even worry if your subcontractors are onboarding their workers in the appropriate fashion, classifying them in the right fashion, and ensuring they get paid the correct wage. Beyond the morale point of ensuring that individuals receive the wage that they are owed in compliance with the law, the new general contract liability laws make the general contractor liable for incidences of wage theft. Even more specifically, the general contractor may now be liable for up to 3x unpaid wages, damages, penalties and attorneys fees. Further, in addition to the financial cost that may come with a wage theft claim, there is also credibility and public relations risk.
Is there an increase in government monitoring of wage theft?
In addition to the new laws in many states and municipalities, the U.S. Department of Labor announced in early 2022 that it will hire new investigators for the Wage and Hour Division to assist with complaints filed with DOL. The infrastructure package passed in 2022 will require an increase in investigations and enforcement for this topic as well. The Build Back Better Act includes more than $4B earmarked for the Wage and Hour division to bolster enforcement activities, along with other measures to protect workers. In addition, there has been increased attention in wage theft enforcement from state attorneys general.
What laws are broken in Wage Theft cases?
There are a number of state and federal laws that can be triggered when wage theft occurs. The Fair Labor Standards Act (FLSA), which provides for a federal minimum wage and allows states to set their own (higher) minimum wage, and requires employers to pay time and a half for all hours worked above 40 hours per week, is often triggered.
How is the Davis-Bacon Act related to wage theft?
The federal Davis-Bacon Act and many states’ laws require all contractors and subcontractors on most government-funded construction projects to implement a wage standard that exceeds the federal minimum wage.
In our next post we will begin to discuss ways in which you can preemptively address wage theft issues, and how to look for indications of wage theft on your projects.
In the meantime, read more about InSight and schedule a demo to see how the software functions, click here.
Up to date information on contractor requirements, worker classifications, and protections can be found on the USDOL’s website.